With more than 13 million cases of COVID-19 worldwide and the number continuing to rise, there are many incentives for healthcare companies to try to develop a treatment or vaccine to stop the spread of the disease. But developing a vaccine takes time, and investors risk getting too excited about studies that are far from conclusive. One way to avoid doing this is to focus on a key figure in the results of any study: the number of participants.
Why is it so important to consider the size of a study?
When companies develop drugs, they go through four stages of clinical trials. In the first phase, a study may include fewer than 100 people, but if the drug is successful and reaches phase 4, the number of subjects is likely to reach several thousand.
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The purpose is to get a diverse group of people to use the medicine to determine not only how effective it is but also how safe it is. According to the United States Food and Drug Administration (FDA), 70% of drugs survive phase 1, with the fewest participants in a study. But as the number of participants increases, the success rate decreases. This is because larger studies will include a larger cross section of the population and more potential problems will emerge than in a small study where the scope is much more limited.
Unfortunately, investors seem to be ignoring this number
One stock that has been going up this year is Modern (NASDAQ: MRNA). The biotech company’s shares have risen more than 300% so far this year, and this year it has been among the top stocks in the markets. the S&P 500, meanwhile, it’s about where I was at the beginning of the year. Much of Moderna’s success can be attributed to his work on a coronavirus vaccine.
On July 14, the company released a preliminary report on a phase 1 study in 45 people. The results were promising, indicating that the patients produced neutralizing antibodies that could help them develop immunity to SARS-CoV-2, the virus that causes COVID-19. And although the drug did not cause serious side effects in patients, more than half of the people who took the drug reported mild or moderate effects. With a larger sample size, more problems can arise.
However, investors focused on the positives and stocks rose the next day by as much as 17%. Even with Moderna’s stock trading at record highs and investors now paying around 500 times the revenue the company generated just to own a part of it, there is still a lot of optimism.
The big test for the Moderna vaccine is yet to come as the company will launch a much larger Phase 3 study (30,000 participants) on July 27. Those results will be much more important and useful in evaluating how effective the company’s vaccine is on a broad scale. A strong demonstration from that study could make Moderna’s shares skyrocket even further. However, a disappointing result could cause it to collapse, and therein lies the risk of becoming overly optimistic too soon in small-scale studies: subsequent studies may deny the first signs of progress.
Pfizer (NYSE: PFE) It also released positive results from a study related to its potential coronavirus vaccine earlier this month. The pharmacist, who works with German biotechnology. BioNTech (NASDAQ: BNTX) In the project, the study results were published on July 1. It involved 45 patients and, as in the Moderna study, found that the vaccine produced antibodies in patients that could help prevent them from contracting COVID-19. Another similarity was that the study was not symptom-free, as more than half of the patients reported problems after a second injection, although none of the side effects appeared to be serious.
So far in July, Pfizer shares have risen more than 9%, while those of S&P 500 It was up 4%. This superior performance is likely thanks to the test results, given that this has been the company’s main development in recent weeks.
Investors should be careful when investing in vaccine stocks.
There are many reasons to be optimistic if a company is making progress in developing a COVID-19 vaccine: it is needed worldwide. Some analysts estimate that if Moderna’s vaccine is successful, it could generate $ 5 billion in revenue in just a few years. That’s not bad for the Massachusetts-based company, which reported just $ 60 million in revenue in 2019.
But until results on a much broader scale are available, stocks are too risky an investment right now. Its astronomical price today suggests that investors hope the vaccine will be successful. And if not, investors holding the shares today could incur significant losses.
A safer option might be to invest in an established company like Pfizer that is a decent purchase beyond its coronavirus vaccine candidate. Operating with just 4 times sales and 12 times profit, the New York-based company is a safer bet. A $ 5 billion increase in sales would mean much more to Moderna than to Pfizer, which generated $ 51.8 billion in revenue last year.
Year to date, Pfizer shares are down 9%.
It may be less exciting, but investing in solid business healthcare companies like Pfizer is a much safer route than speculating on a company like Moderna. With the latter, you’re basically betting on the success of your vaccine, which, at this stage in the process, is still too early to determine.
